On the header

Microsoft just wrote off nearly all of the $6.3 billion it paid for online advertising technology firm aQuantive back in 2007. It’s an admission that the purchase, even more expensive at the time than it seems today, hasn’t worked out well–and a stark acknowledgment that its online ad business continues to lag the fast growth of Google and a couple of generations of Internet startups.

In a release, Microsoft essentially concedes that virtually all of the value, or $6.2 billion, of that $6.3 billion acquisition has been “impaired,” in the dry language of accounting. “While the aQuantive acquisition continues to provide tools for Microsoft’s online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the write down,” Microsoft said in the statement. “While the Online Services Division business has been improving, the company’s expectations for future growth and profitability are lower than previous estimates.”

Since expectations on the outside for the perennially money-losing division already were low, that’s a pretty grim admission–one that belies its recent hopes for a resurgence. …

Google will shortly provide an “under the hood look at Google Search” for a group of reporters and bloggers in San Francisco. According to the invitation, Google Fellow Amit Singhal, who for a decade has headed the core search ranking team, and others will “share our vision and demo some of our newest technology and features.”

It’s uncertain what Google will talk about, but events like this often are a forum for introducing new features. The last time Google did a similar event, the company introducedGoogle Instant, which shows search results as you type–a very significant change in its iconic search engine. Given how much competition Google’s facing not only in search but from social services from Facebook to Quora, it seems likely the search giant will have some notable new features or services to talk about. I’ll be liveblogging the highlights (as will many others). You can also watch it here. And you can submit questions to insidesearch 2011@google.com.

It’s ironic, or maybe apropos, that you can’t find anything about the new mobile search application Do@ by Googling it. Google doesn’t track the @ symbol at all. But the Israeli company (pronounced “do-at”), which launched its free iPhone app today at TechCrunch Disrupt in New York, is looking to do a number on Google. It aims to provide a new way to find stuff specifically when you’re on your phone and the iconic list of site links becomes cumbersome. Instead, a search using Do@ helps you zero in quickly what category of information you want and then sends you directly to the app that’s most likely to have just what you’re looking for.

Here’s how it works: Search for, say, “Bob Marley” using Do@, and you’re presented with a drop-down list with the query followed by categories designated with the @ sign, such as @music (where you’ll see results inside apps such as Pandora or iTunes or SoundCloud) or @movies (where the likes of Flixster or IMBD.com provide results).

These categories are relevant to the particular query, so a search on “sushi,” and you see “sushi @restaurants,” “sushi @food,” and so on. Then when you click on one of those, you’re whisked to an app or service such as Foodspotting or Flixster, which then shows its own mobile-optimized results for that query. You can swipe through multiple apps for a query to get more quickly to just what information you want.

You’re seeing only a selected subset of Web sites and services this way, of course, but for common queries made from a mobile phone, that may be better in most cases than a huge list of links. Do@ ranks the lists of apps and services itself at first, but you can choose your favorites or, if you’re signed into Facebook, get your friends’ amalgamated choices. Essentially, says cofounder Ami Ben David, publishers answer users’ queries themselves, using their own apps or services, their own brands, and their own business models.

The judges at the TechCrunch Disrupt startup competition who viewed the demo questioned how Do@ knows the results it’s presenting–that is, the results inside other apps and services–are actually relevant for users. “We try to stay away from making these decisions for users,” Ben David said. The judges, including Bing’s Barney Pell and Google’s Bradley Horowitz, weren’t really buying this, noting that Do@ needs to objectively determine whether its partner apps and services are actually delivering the goods.

When Ben David first demonstrated the service to me in early March, he said Do@, which has $8.6 million in venture funding including a recent $7 million round led by Draper Fisher Jurvetson, is “trying to be completely different.” That’s commendable, but it’s also the company’s key challenge. Google’s list of links may not be perfect for many mobile searches, but it’s still not bad, and Google’s Instant Search solves some of the hassle of doing multiple search queries on a phone keyboard. Persuading users to change their behavior, even for something that may work better in many cases, is a huge hurdle that virtually no Google rival has yet jumped.

And given that Do@ isn’t doing the heavy lifting to index the Web’s huge collection of sites, or vetting the actual search results its partners offer, its key offering amounts to a new user interface for mobile search. Which sounds like a set of features–albeit a very nicely designed set of features, one likely to be copied if it proves effective–more than a company.

According to Efficient Frontier, Google’s share of paid search spending rose to 77.9% in the third quarter, up from 75.8% in the second quarter. The reason, according to the company: Even though Bing has consistently provided a better return on spending than Google, the addition of Yahoo’s less effective search ads dragged the combined entity down.

Likewise, SearchIgnite said Google’s share of search spend rose to 80.2%, the highest since first-quarter 2009 and the highest since SearchIgnite began tracking spending in 2007. Even though Bing led the growth in spending among the major search engines, up 21% from a year ago, Yahoo fell 10%.

Google will likely see relatively significant gains in the fourth quarter as both seasonality and the Bing- Yahoo! integration skew spend in their favor. The seasonal retail focus of Q4 typically favors Google in spend as they over-index in retail at over 80% share. The changing efficiency of the Bing-Yahoo! integration will likely see some additional, although likely temporary, spend shift in Google’s favor.

Still, it’s hardly game over for Binghoo. SearchIgnite says click-throughs on the combined service have risen because Bing’s ad-serving formula is delivering better results, so advertisers are ready to spend relatively more–especially since they really want an alternative to challenge Google’s dominance.

Paid search spend in Q3 increased 5.8% year-over-year compared with flat growth a year ago and exhibited positive momentum month-over-month, with July growing 4.9%, August 5.8% and September 6.7%. The growth throughout the quarter bodes well for a strong Q4.

Efficient Frontier saw a similar trend and also anticipates a strong fourth quarter:

In Q3 2010, the SEM sector extended its 2010 growth streak. Year on Year (YoY) spend was up 19% with a solid 6% sequential Quarter on Quarter (QoQ) growth. The important metrics of CPC, clicks, and impressions all rose indicating both strong advertiser and consumer demand. Overall return on investment (ROI) in search is up 8% YoY, a critical factor driving the rising CPCs and overall advertiser demand.

Efficient Frontier believes search will grow in the range of 15-20% in Q4. Efficient Frontier’s reason for Q4 search optimism is built on the following three reasons. First, retail has led the way for search in 2010 with consistent growth. Next, Q3’s 19% YoY growth in spend on more difficult comps and slight sequential rise is a positive signal. Finally, strengthening ROI numbers with increasing CPCs bode well for overall advertiser demand.

There’s one wild card this holiday season in online advertising: Facebook. Efficient Frontier anticipates that a lot of advertisers will up their test budgets for ads on Facebook.

Yahoo’s set to announce a new product strategy shortly at what it’s calling Yahoo Product Runway. I’ll blog the highlights as they come from Blake Irving, EVP and chief products officer ad Raymie Stata, VP and chief technology officer.

And we’re underway, with some observations on Yahoo on Irving’s hundredth day here. Things are great, he says, and what else would he say? Essentially, he elaborates, Yahoo is a killer technology company. Deep connection between labs at Yahoo and the product organization. You’ll see things in the next year or three or five that look different from before–more iterative products, but more unified under Yahoo as a whole.

Yahoo will be something you take with you rather than someplace you go–content, friends, etc. We’re going to be finding a lot of harmony between advertisers and consumers (code for behavioral targeting, I think, which isn’t new, but clearly Yahoo could lead in making targeting more palatable).

Now on to Yahoo’s product vision, a graphic of which looks like part of a periodic table of elements:

* Me, for bringing personal meaning to the Web.

* Ec, for building an ecosystem.

*Si, for creating personal relevance through science and data. 300 million log into Yahoo a month, providing a wealth of data about what those people are doing. Yahoo will start honoring Facebook, Twitter and other IDs.

* Cu, for being where the customer goes. Will see a lot more mobile versions of products, sometimes before Web products. More folks will be typing on glass vs. keyboards before long.

* So, for owning real social relationships on the Web. Social networking is just starting, despite Facebook’s apparent dominance. People still want more control to socialize with lots of small groups of friends.

* Search: More visually appealing and with more of an ability to act on the search result. People don’t want to just search, they want answers.

* Lots of Twitter integration, such as the ability to tweet from particular stories on Yahoo.

So we’re going to be moving fast, with more incremental changes to products.

So far, my socks are still on.

Now Stata comes on to tell about the technology underpinnings of all this. Lots of generalities to my ears, but some specifics:

* Relevant, personalized content for consumers. Much deeper than it has been–content optimization on every page, including those of partners such as AT&T. This will produce higher engagement, he says, which is what advertisers want as well.

Yahoo’s services are supported by a cloud infrastructure, a network of data centers of various sizes all over the world, to make the services faster for users anywhere they are.

I think of Yahoo as a big ship, need to maintain powerful engines while swapping some out. But the new engines are now in place.

Now it’s time for questions:

Q: Can you expand on the new search experience? Shashi Seth, who runs this, steps up to explain: We’re going to provide the best guess we can but provide an “accordion” to let people expand on what they really want.

We’re going to need to see the demos outside the conference room, clearly, to judge what Yahoo’s doing on all these products.

Q: On mail, what sort of innovation will we see that goes beyond regular email, which can be inefficient? Irving: Raise the things most important to you on the top (sort of like Google’s Priority Inbox? Sorry…). At its core, Yahoo’s new email service is faster, will incorporate instant messaging as needed.

Q: How are you distinguishing Yahoo search from Bing? And in three years, what will Yahoo be? Seth: On search, Yahoo no longer has to do the backend stuff like crawling and determining relevance. In three years, search won’t look or act anything like what search is today. We’re trying to take the science and tech we used to apply to backend and bring it to the forefront to reimagine what search can be. Nothing specific yet, though–that’s on the come.

Irving: In three years, Yahoo will be a global series of experiences… that are very personalized and targeted. (Uh-oh–sounds a little amorphous again, which is Yahoo’s perennial problem.) I would hope that when you look at us, you’ll say we delivered on that.

Q: Skeptical question asking for specifics, but we don’t get much.

Q: Several of these products now elevate Facebook and Twitter–are you allowing them to drive Yahoo products? Irving: It’s just providing users with what they want to do. But there are holes in what people want to do in social networking. The social networking game isn’t over because we’re doing integration with Facebook and Twitter.

Q: How are you integrating on various platforms like Android, iPhone, Windows, etc.? Irving: We’re a friendly company to do business with, helping companies provide a good Yahoo experience on all the platforms.

Q: What were your misconceptions about Yahoo before you came? Irving: One, I wasn’t sure about the technology company thing (as opposed to a media company that Yahoo kept saying it was). Found that Yahoo at its core is a tech company that finances itself through media/advertising. For another, found that there was in fact a horizontal platform that allows acquired services (such as Flickr and many others) to get off their own platform stack and use Yahoo’s underlying technical resources.

Q: Could you sum that up in a tagline? Irving: I’m in the product team, so no.

And that’s about it.

Update: I think Yahoo might have better off leading with the demos, which were pretty interesting. Yahoo Mail, in beta inside Yahoo but slated to be rolled out to all users this fall, looked fast and clean, and might keep me from my longtime threat to abandon it.

On the advertising front, Yahoo is testing out several new kinds of ads. One, called a Content Mashup, has tabs inside the ad for videos, Twitter, and other custom categories the advertiser can set up and populate with content. Another, called a Digitorial, can run games, videos, polls, and other services inside the ad, all trackable so advertisers know what’s most engaging people. And there’s also an interactive video-in-a-banner ad; when you mouse over the ad, there are links overlaid to other experiences such as games.

And there’s a new search interface coming as well, one that has vertical tabs that let you reach Yahoo content relevant to a particular search result.

Google‘s much-anticipated event promising to chart out the future of search is about to start, and the auditorium at SF MOMA is packed with press. You can view the event on YouTube. Assuming the wireless network holds up, I’ll liveblog the highlights here. And the anticipation is indeed thick. Google Fellow and search honcho Amit Singhal, sitting in front of me, leans back to tell me, “This is a day you won’t forget.” OK!

Update: Google’s blog post on Google Instant is up now, along with lots more information. To sum up, Google has essentially slashed several seconds off the time it takes to form and type in queries. As you type, Google keeps guessing what your full query is, streaming out new search results with each new letter. And that’s huge. Maybe, as some people have speculated, the rise of Microsoft’s Bing search engine goaded Google into making more and faster improvements in search–or maybe not. But it’s clear, if it weren’t already, that Google isn’t resting on its laurels. And for now, it has set a new bar in search.

Here’s a video intro from Google:

And on to the event: PR director Gabriel Stricker comes on to explain that what Google does is one part art, one part science (well, seems like at least 5 parts science but anyway). Thus the event here at the Museum of Modern Art.

He adds that speed will be a large part of what’s being announced today. And now Marissa Mayer, VP of search products and user experience, comes on. She says Google has just passed 1 billion users a week, making Google one of the most-used services (Internet or not) in the world.

In 2009, Google rolled out more than 500 changes in search. Already this year, more than that. A few of the improvements:

* Caffeine: 50% fresher results.

*Real-time search, including timeline views and conversation views.

* Spell corrections: They’re now part of the autocomplete function as you type in a query.

* Enhancements to questions and answers.

* Stars in search: the ability to bookmark results for users signed into Google.

And so, today’s announcement… but first Mayer provides a little art history on a Matisse painting at MOMA. Which she points out would have taken days in a library to research in 1935. Today, the Internet provides real-time info, like whether the piece is actually on display at this time.

Mayer says people take about 9 seconds to enter a query, Google takes about 300 milliseconds to deliver it, plus 800 more milliseconds network time, and then people take 15 seconds to select a result. But at some point, we’re up against speed of typing and thinking. The past few months, Google has been attacking this problem. So: Today Google is launching Google Instant, which gives search results as you type and streams those results real-time–apparently like what I saw last night.

The home page looks the same until you start typing. So type “sfm” and you get actual results for SF MOMA. So that obviously has the potential to vastly reduce the query-typing time.

Actually, Mayer says, it’s not “search as you type,” but “search BEFORE you type,” in a sense. “There’s even a psychic element to it,” she adds, anticipating what you might mean. (Sure to freak out privacy advocates.)

Mayer: It means much faster search, much easier search, more ways to explore. Google Instant will be available later today on Chrome, Firefox, Safari, and IE8, rolling out gradually. It will be part of the core Web search experience. Also will roll out in the UK, France, Italy, Germany, Spain and Russia in the next week, if you’re signed into Google.

We think Google Instant will help users save 2 to 5 seconds per query. May not seem like much, but that’s a lot of time, over time. And of course, potentially a lot more Google ads viewed.

Now Joanna Wright, director of product management, and Othar Hansson, senior staff software engineer, come onstage to show the three main features of Google Instant. Wright says to think of the features as gears in a system.

1) Instant results: There’s no need to finish typing or type “enter.” Hansson types one letter, “w” and gets results for weather in San Francisco.

2) Set of predictions: Hansson types in “the gi” on the way to typing “the girl with the dragon tattoo,” and links for the movie and book title appear. This is an example of the idea of “search before you type.”

3) Scroll to search: Hansson starts typing “yose” and gets results for Yosemite, and can quickly scroll the suggestions in the drop-down box below the search box, and as he scrolls, those results come up instantly, so you don’t have to leave the original query and can quickly scan a lot of relevant results. For example, he starts typing in “Addams Family,” then sees that the musical is what he’s interested in, and pressing tab adds that word. Then he wants tickets, so he types “t” and then a suggested result for “Addams Family musical tickets” appears instantly.

Wright: Google works seamlessly as it always has. All it does it speed things up. So if you know how to do Google search, you know how to do Google Instant . (This is key, since too many newfangled search features require changing behavior, taking extra steps, and the vast majority of people just don’t do it. Google has been bemoaning this for years, but here it has found at least one way for people to refine results with virtually no added effort.)

And now a sneak preview of something coming out this fall: Hansson: We’re working hard to get this on mobile. Because typing on a phone is slower than on a keyboard, Google Instant should be even more useful on mobile devices. This will be available later this fall.

Ben Gomes, a Google distinguished engineer, comes on to explain the technology behind it. He says some people within Google said it would be too expensive, or too complex. But upper management said, “We have to do it.” Three challenges: user interface design, search as an application, and efficiency and scale.

On the user interface: Actually, one Google engineer demoed this years ago, calling it “incremental Google search,” but Google wasn’t fast enough to handle it. Hansson says showing early incremental results was actually distracting at first with test users, but says Google eventually got the timing right to reduce that distraction factor.

On search as an application: Had to optimize all kinds of things, most of them way over users’ heads.

On efficiency and scale: Gomes: How do we possibly do this without melting down our data centers? Several optimizations, says Hansson, in the initial prototype, in prioritizing searches, in caching (storage) of results, and many more they’re not talking about.

Gomes thanks the team that did this, showing a slide with the photos of more than 200 people.

Summing up, Gomes says Google Instant “makes search much more fun, fluid, and interactive,” as well as faster. Mayer calls it “search at the speed of thought.” Now she talks about the Google Instant team was inspired by Bob Dylan, showing a video to Dylan’s Subterranean Homesick Blues. OK, I think it’s time for questions…. And indeed it is, with the principals joined by Google cofounder Sergey Brin and Udi Manber, the VP of engineering responsible for core search.

There are numbers counting on two screens at the sides of the auditorium, clicking upward by 11 each second–the number of hours saved per second by Instant, according to Google’s estimate.

Q: When will Instant get into the browser itself (where many people do queries)? Mayer: A few months. (Not sure why it will take that long, but it can’t come too soon. I don’t often search from Google.com itself.)

Q: What impact will Instant have on advertising? Mayer: The overall clicks to a site should remain similar.

Missing a few questions, sorry….

Q: Is there a blacklist for certain words? (This from an AdAge reporter with the last name of Slutsky.) Wright: We filter for violence, pornography. We won’t show results until you actually press enter.

Q: How much personal info is needed to do these predictive results? Mayer: For weather, for example, it’s not personal info, it’s IP address that implies location.

Q: Where does the machine-human interface go from here? Brin: Jokes that he wanted to say “We want to make Google the third half of your brain.” “It’s a little bit of a new dawn in computing. Things have been stagnant on the desktop for a decade.” That’s changing now with the Web and new platforms.

Q: What’s the impact on search engine optimization? Gomes: Basically, ranking stays the same. So in that sense there’s not that big a change in people trying to adapt to the search engine (changes).

Q: What about China, given that Google results are blocked there? Mayer: Goal is to roll out in as many platform and geographies as possible. Hope to roll out on Google.hk, the Hong Kong site.

Q: What are the benefits of this for the average user? Does the average user want faster search? Duh.

Q: How will this impact concerns about privacy? Brin: Privacy is something that we think a lot about as a company. Users place a lot of trust with us. I don’t think Google Instant is any different in that respect.

Q: How will user behavior change over time with Google Instant? Gomes: You may do more multiple queries around your result… because it’s such a fluid experience. People are going to explore their topic of interest much more than they did before.

Q: Did some test users not like this, and if so, why? Mayer: Some users did choose to turn it off, but mostly for connection speed issues, and a very small percentage.

Q: Is this separate from Caffeine? Gomes: Not directly related, but faster cache of Caffeine makes Instant more possible.

Q: How will Instant affect paid search, and will it mean the end of SEO? Wright: The ranking of our search results is the same.

Q: Did you ever think that you would reach this point? Brin: It’s kind of amazing the things we can do today, with Moore’s Law etc. We did have to spend a lot more compute power on it.

Q: Can search get even faster? Gomes: Tomorrow, I’m sure we’re going to go back tomorrow and try to make things even faster, because that’s what we do. Manber: You ain’t seen nothing yet.

Q: Won’t the fact that this reduces the need to go to Page 2 of search results affect search ads? Wright: This is a user-focused launch. And we really believe that’s going to be better for advertisers. Don’t anticipate any fewer ads to be shown. (Wright seems confused by the question, but I also wonder why there wouldn’t be some impact on the number of ads shown, or at least whether advertisers will bother trying to get ads anywhere but the top and right of the first page. Indeed, Steve Rubel thinks Instant makes SEO irrelevant. John Ebberts at Adexchanger.com also has some insider thoughts on what Instant could mean for various kinds of online advertising.)

Q: Last one, from Search Engine Land’s Danny Sullivan: Sometimes the top search results are not really right, so how will Instant affect that? Hansson says basically that it’s faster to get to more relevant results, even those that would have appeared on page 2 or later.

Given the even sorrier state of the economy a year ago, it’s not hard for any industry to show an improvement. But even though search ads didn’t slump nearly as much as every other kind of advertising, it’s continuing to show strong improvement, according to a new report from search marketing firm Efficient Frontier. That’s likely to bode well for Google, which reports its second-quarter earnings on Thursday. From the report, released this morning:

In Q2 2010, the search marketing sector continued to bounce back, shrugging off a still uncertain economic environment. Year on Year (YoY) spend was up 24%, with a 9.7% increase in spend Quarter on Quarter (QoQ), partly due to a recovery in Cost Per Click (CPC) prices which rose across all of the major search engines. Overall, return on investment (ROI) in search was up 4% YoY and 10.6% higher than last quarter (Q1 2010). Search marketing growth continues to exceed the 2010 outlook of 10-15% due to increased consumer demand, which results in higher pricing as indicated by higher CPCs.

In the first half of 2009, search felt the adverse affects of a sputtering global economy. In sharp contrast to a year ago, search marketing in Q2 2010 is showing a strong recovery. Marketers shook off the continued economic uncertainty and capitalized on improving return on investment from search advertising to grow sales volume.

The retail sector leads the recovery with 38% growth in spend YoY and 16% growth QoQ, a pace that far exceeds the typical modest quarterly rise in Q2. Building on the momentum of Q1’s strong growth, retail CPCs continue to grow at 18% YoY and 17% QoQ, indicating a growing aggressiveness on the part of advertisers in this sector. Consumers are also playing their part in driving the recovery. Impression volume in the retail sector was up 65% YoY, signaling continued consumer interest in online shopping.

Here’s the rundown, sector by sector followed by Efficient Frontier:

• Retail: Spend was up 38% YoY due on strong consumer and advertiser demand.

• Travel: Spend was up 10% YoY on CPC gains.

• Finance: Spend was down 2% YoY due to a decrease in CPCs that was largely offset by volume growth.

• Auto: Spend was up 6% YoY on CTR and CPC gains.

Meantime, while Microsoft’s Bing search engine continues to gain, it’s at the expense of Yahoo, not Google, at least when it comes to search spending. Efficient Frontier says Google continues to hold 75% of search spending, while Bing has 6.4%, up from 6.1% in the first quarter, and Yahoo’s share fell from 18.7% from 18%.

Another search marketing company, SearchIgnite, reported similar trends. It says search spending rose 14% in the second quarter, accelerating from 11% in the first quarter. Spending on Bing rose 26%, giving it a 6.2% share, Yahoo was up 3% to get 15.4% share, and Google remained dominant with a 16% uptick, hitting 78.4% market share.

ComScore’s latest numbers also show Google lost a small amount of search market share to Bing and Yahoo, though analysts note that a change in how comScore measures searches makes the shift’s significance uncertain.

All that indicates Google’s second quarter will look pretty good. Analysts on average are expecting its revenues to rise almost 23%.

Investors will be looking forward more than back, however. Google is notoriously stingy with outlooks, so for now Efficient Frontier’s will have to suffice, and so far, not surprisingly given the iffy state of the economy, it’s a mixed picture:

The last two quarters have shown strong growth in terms of SEM spend (20% YoY in Q1 and 24% YoY in Q2) and we expect the positive trends to continue for the second half of the year. CPCs continue to make a strong recovery, indicating growing demand and larger advertising budgets which should continue to contribute to the expected growth in the coming quarters. However, weakness in the European economy might negatively affect Q3, so we remain cautious as we keep our SEM growth expectations in the 15-20% range. Should we continue to see strength in Q3, and taking into account typical strength in Q4, the year could surpass our already upwardly revised expectations.